Wall Street soars as inflation falls more than expected in July

Wall Street stocks soared later on Wednesday inflation cooled more than expected last month, prompting speculation that the Federal Reserve may not have to be as aggressive about raising interest rates as feared.

The S&P 500 was up 73 points at 4,196, or 1.8%, by 12:30 a.m. ET amid a broad rally that was launched after a report showed the nation’s biggest economic challenge , inflation, slowed to 8.5% at the consumer level last month. from 9.1% in June. Tech stocks, cryptocurrencies and other of the year’s hardest-hit investments were some of the day’s biggest winners.

The Nasdaq composite, the many high-growth and expensive-looking stocks that have been particularly vulnerable to interest rates, rose a market-leading 2.6%. Bitcoin rose 3.3% to over $24,000, and the Dow Jones Industrial Average rose 457 points, or 1.4%, to 33,231.

Netflix, a previously high-flying, high-growth stock that has slumped to this year’s worst performer in the S&P 500, rose 5% even as it remains down. almost 60% by 2022.

Hopes of cooling inflation are growing

Much of the deceleration in inflation in July was due to lower gas prices and oil But even after ignoring pump prices and volatile food prices, so-called core inflation held steady last month instead of accelerating as economists had expected.

The data encouraged traders to cut bets on how much the Fed will raise interest rates at its next meeting. They now see a rise of half a percentage point as the most likely outcome, according to CME Group. A day earlier, they were betting on a more aggressive hike of 0.75 percentage points, the same as the last two increases.

These differences may not seem like much, but interest rates help establish where prices are going in the financial markets. And higher rates tend to drive down the prices of everything from stocks to commodities to crypto.

Still, while news of cooling inflation has buoyed markets, it likely won’t deter the Fed from its aggressive rate hike plans, analysts say.

“Although the core aggregate slowed considerably from the previous month, Fed officials are unlikely to see this report as a signal to deviate from their steep tightening path that we expect through the end of this year,” Morgan Stanley researchers wrote in a report.

Bond prices soared immediately after the inflation report was released, pushing down their yields. The two-year Treasury yield, which tends to track Fed expectations, fell to 3.10% from 3.27% late Tuesday.

The 10-year yield sank more slowly to 2.74% from 2.78%, narrowing how far it is below the two-year yield. Many investors see this gap as justice reliable signal of an impending recession.

Recession worries have piled up as the highest inflation in 40 years squeezes households and businesses around the world. The Fed and other central banks have raised rates to slow the economy in hopes of stamping out inflation, but they risk stifling it if they move too aggressively.

Of course, inflation is still painfully high, and the expectation is that it will remain so for some time. However, Wednesday’s data rejuvenated Wall Street, which staggered after a stronger than expected employment report on Friday, that raised expectations for a more aggressive Fed. It bolstered hopes that a spike in inflation — and therefore more aggressive rate hikes by the Federal Reserve — could be on the horizon.

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“This is a step in the right direction, but keep in mind that we have many miles to go before inflation normalizes,” said Mike Loewengart, managing director of E-Trade investment strategy at Morgan Stanley.

The Federal Reserve will receive some more expected reports ahead of its next interest rate announcement on September 21, which could also alter its stance. These include reports showing hiring trends in the economy through September 2, and the next update on consumer inflation is due on September 13.

More immediately, this week’s reports will show how wholesale inflation is performing and whether American households are still cutting their expectations about the next inflation, an influential data point for Fed officials.

In:
• Economy
• cryptocurrency
• Stock Market
• Gas prices
• inflation